Compressed biogas (CBG) projects relying heavily on municipal solid waste (MSW) could face a higher collateral burden when seeking bank finance, as the absence of credit guarantee support under the GOBARdhan scheme would require promoters to provide additional security against loans.
Under the GOBARdhan scheme, eligible projects can access credit guarantee coverage of up to 85% on term loans of up to Rs 20 crore. However, projects sourcing 50% or more of their feedstock from municipal solid waste or sewage are excluded from the scheme’s capital assistance and credit guarantee support.
Explaining the financing implications, a State Bank of India official, speaking on condition of anonymity as he was not authorised to speak to the media, said that without the credit guarantee, promoters would have to provide collateral security to obtain bank finance, increasing the overall financial burden of setting up such projects.
“Whereas if it is not covered under this scheme, then the promoter has to contribute that much of security to establish this. So that is a huge burden for the promoter also. He has to show that collateral security,” the official told ChiniMandi.
The official said banks would broadly follow the same project appraisal principles for MSW-based CBG projects as they do for other manufacturing projects, regardless of whether the project is financed through any government programme.
The assessment would primarily focus on the availability and reliability of feedstock, the promoter’s ability to market the finished product and the strength of the project’s backward and forward linkages.
“So, if there is no government support, how will you market your product? Backward and forward linkage we have to see,” the official said.
Drawing a comparison with sugar factories, the official said lenders assess factors such as crushing capacity, electricity generation, raw material availability and the extent of the registered sugarcane area. They also examine the number of days a factory operated during the previous season.
The objective is to determine whether sufficient raw material will be available to keep the plant operational throughout the year. For a manufacturing project requiring continuous operations, lenders would assess whether feedstock supplies can be maintained for the entire 300-day operating period.
The same principle would apply to CBG projects. Banks would assess whether feedstock can be supplied consistently throughout the operating period and whether the producer has a viable market for CBG and other outputs.
There was no fundamental difference in the way banks appraise projects financed through urban development schemes and those supported under other government
programmes, he said. However, the absence of ‘credit guarantee coverage’ would increase the collateral requirements for promoters, he added.
The government has other programmes aimed at supporting municipal solid waste management. For instance, Swachh Bharat Mission-Urban 2.0 includes sustainable
solid waste management among its key objectives, including scientific processing of municipal solid waste. However, these schemes do not provide a credit guarantee similar to the one available under GOBARdhan.
On the government’s decision to exclude projects with a high municipal waste feedstock component from GOBARdhan support, the official said waste management itself remained a major challenge for the government.
He said the government was promoting waste-to-value initiatives to address the challenge and could consider additional incentives or schemes if such projects gained traction.
For now, MSW-based CBG projects that fall outside the GOBARdhan eligibility criteria would need to explore other government schemes and financing arrangements. The key difference for promoters is that they would not have access to the GOBARdhan credit guarantee, potentially increasing the collateral required to secure bank finance.
